Shares Placed in Trust
The transaction represents an enterprise value of approximately $31 billion. KCS shareholders will receive 2.884 CP common shares and $90 in cash for each KCS common share held, and $37.50 in cash for each KCS preferred share held.
CP Rail has placed the shares of the U.S. railroad in a voting trust while the U.S. Surface Transportation Board reviews the deal.
The CP Rail combination with KCS will create the only single line railroad connecting the United States, Mexico and Canada. CP Rail said the expected benefits of the combination will not be realized until the U.S. regulator approves the deal.
The railway expects the STB to complete the review of the deal in the fourth quarter of 2022. After gaining control approval from STB, the two companies plan to achieve full integration over the next three years. (See Analysts’ Top Stocks on TipRanks)
CP president and CEO Keith Creel said, “Today is a historic day for our two iconic companies. CPKC will become the backbone connecting our customers to new markets, enhancing competition in the U.S. rail network, and driving economic growth across North America while delivering significant environmental benefits. We are excited to reach this milestone on the path toward creating this unique truly North American railroad.”
Wall Street’s Take
On December 8, RBC Capital analyst Walter Spracklin maintained a Buy rating on CP and C$115 price target. This implies 24.9% upside potential.
Overall, consensus on the Street is that CP is a Strong Buy based on 10 Buys and three Holds. The average Canadian Pacific price target of C$108.65 implies 18.1% upside potential to current levels.
TipRanks’ Smart Score
CP scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock returns are very likely to beat the overall market.